Upfront Investor | Why IPO’s Are Bad News…

The IPO world is once again aflutter with news that Twitter (pun intended), the 140 character limit, social media, text message service is set to list on the New York Stock Exchange. Not surprisingly, the big wigs of Wall Street are currently schmoozing potential investors on the idea of this latest float but it’s going to be a pretty hard sell for a company that’s never turned a profit and has in fact lost close to half a billion dollars since it was founded in 2006.

What makes the sell even harder for potential investors is the recent bungled listing of another social media giant, Facebook. After more than halving in value from its list price of $42.05 within just four short months, the company was hit with a mountain of lawsuits claiming important financial information was not disclosed prior to listing. Closer to home, iSelect the online health insurance comparison company is down around 23% since its listing in June this year. No doubt this was a major reason for now ex-CEO Matt McCann’s departure this week.

As you can see IPO’s pose a large degree of risk and there’s no certainty you’ll see a dime of profit should you choose to invest. Of course, there is potential risk in any investment however newly listed companies naturally have a larger degree of risk as the whole idea of a listing is to make the owners of the company rich first and you the investor a far second. I have a saying that ‘the market will always be there but you might not’ and what I mean by this is you need to be patient when investing in the markets. It’s easy to get emotional and look for the quick easy buck but more often than not lady market has the last laugh with those with such an investment mindset.

So what do we expect in the market?

Buoyed by a last minute deal in the US to once again save the Government from default, investors have piled back into the market initiating a rise back towards the September high of 5307 points. Given the current strength of the market I wouldn’t be surprised if we see the All Ordinaries surpass this high in the next few weeks.

I am sure there are some wise investors out there who would have swooped on recent weakness in the market and grabbed hold of some quality companies for their portfolios. Caution however needs to be taken on the length of investment in recent purchases as I still believe we are heading towards the peak of the current price cycle. This isn’t to say that many companies will continue to be bullish, it’s simply a warning to keep a close eye on price action as it unfolds over the coming months and be prepared to take action should the market begin to show stronger signs of weakness.

 

To your profitable trading,

Dale Gillham
Chief Analyst
Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’. Dale has assisted thousands of traders and investors to learn to trade shares and become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment adviceto traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.